China’s economic cool down continues

China’s economy continued to slow
in July even as consumer price inflation rose again, intensifying the debate
about whether recent efforts to tighten policy have gone too far.

As efforts to calm the property
market and reduce energy consumption began to bite, the rate of increase in
industrial production, fixed asset investment and retail sales all fell in
July. New banks loans and money supply growth slowed.

Inflation jumped above the 3 per
cent government target to 3.3 per cent, up from 2.9 per cent the month before.
But factory-gate inflation fell from 6.4 per cent to 4.8 per cent. Most
analysts said China was witnessing a controlled slowdown rather than a new
reverse. However, the economy appears to be decelerating more quickly than
predicted a few months ago.

The central government is likely to
come under pressure to reverse some of the tightening measures, especially from
local government which has strong links to the real estate and energy-intensive
industries.

 “China is facing the risk of an accelerating
slowdown and there should be some policy changes to reverse the situation,”
said Lu Zhengwei, an economist at Industrial Bank in Shanghai.

There had been speculation in
recent weeks that China would relax its policy, although recent announcements
have indicated further tightening. Beijing said this week it had ordered the
closure of inefficient plants at more than 2,000 companies as part of its
efforts to improve energy efficiency.

The banking regulator has told
banks to put $339.4 billion of off-balance sheet loans back on their books,
which could force some to raise new capital and cut lending. “The government
shows no signs it is panicking about the slowing economy,” said Liu Ligang, an
economist at ANZ in Hong Kong.

The rate of increase of industrial
output fell from 13.7 per cent in June to 13.4 per cent last month,
year-on-year, while the growth rate of urban fixed asset investment cooled to
24.9 per cent compared to the same period last year from 25.5 per cent. One
example of the impact of the slowdown on heavy industry was the 6.7 per cent
drop in steel production per working day in July compared with the month
before.

0
0

NO COMMENTS